Modi's e-commerce blueprint puts nation first

The government’s draft ecommerce policy makes a strong case for championing ‘Indian’ online enterprise and may have major implications for foreign-owned ecommerce majors operating in India.

Key recommendations include barring group companies of ecommerce players from “directly or indirectly influencing” sale prices. This may mean restrictions on retail strategies of ecommerce majors with subsidiaries.

The draft mentions that bulk purchases of branded goods like mobile phones, white goods, fashion items “by related party sellers which lead to price distortions in a marketplace” will be prohibited. This, if accepted in the final policy, may seriously affect sale strategies of big ecommerce players.

The policy also suggests Indianowned and Indian-controlled online marketplaces be allowed to hold inventory as long as products are 100% domestically produced.

This relaxation on marketplace ecommerce firms is not available for entities controlled by foreign investment.

For Indian founders with minority stakes, the draft suggests there should be differential voting rights giving founders more control. It defines an Indian ecommerce firm as that where foreign investment doesn’t exceed 49%, where the founder/promoter is a resident Indian, and the platform company is controlled by Indian management.

The draft suggests a separate wing be set up in the Enforcement Directorate to handle grievances related to Press Note 3, which details guidelines for foreign investment in ecommerce.

Greater regulatory scrutiny has been recommended for mergers and acquisitions that may “distort competition’ and a relook has been suggested on what constitutes entry barriers and anti-competitive practices.

The Competition Commission of India has been asked to undertake such exercises. This assumes significance in the light of the recent acquisition of Flipkart by US retail major Walmart.

Further, the draft policy also suggests a sunset clause for deep discounting, suggesting a “maximum duration” be set for “differential pricing strategies”. CCI and the department of industrial policy and promotion (DIPP) have been asked to flesh out this aspect.

Marketplace operators cannot hold inventory and sell products on their platform – they can only facilitate the process for other vendors. Also, an ecommerce entity cannot allow more than 25% of the sales transacted on its marketplace from one vendor or their group companies.

The draft policy also proposes a single legislation to address all aspects of digital economy and a single regulator for issues related to FDI implementation and consumer protection. It says legal fragmentation seen across various laws governing the ecommerce sector should be corrected.

On data localisation, the draft says only personal data or community data collected by “internet of things” devices in “public space” will need to be stored in India. Other data, which have no personal or community implications, can be stored anywhere. However, the draft suggests a two-year sunset period before making data localisation mandatory.

The policy is aimed at “creating a level playing field for foreign and domestic players in the Indian market”.

On taxation front, it has suggested fast tracking lithe use of the concept of ‘significant economic presence’ as the basis for determining ‘Permanent Establishment’ for the purposes allocating profits of multi-national enterprises between ‘resident’ and ‘source’ countries.

It has also favoured simplified GST procedures for ecommerce by allowing centralized registration instead of local registration and displaying requirement for each place of business.